Telecom investment to get a fillip as Trai sticks to its guns

Written by fe Bureau | New Delhi | Updated: Oct 24 2013, 14:49pm hrs
The Telecom Regulatory Authority of India (Trai) on Wednesday stuck to its earlier proposal of up to a 60% cut in the reserve price for the next round of spectrum auctions in the 1,800 and 900 MHz bands saying the price was arrived at by the use of internationally accepted methodologies.

In its 63-page report to the department of telecommunications (DoT), peppered with quotes from Shakespeare and James Joyce, the regulator has said that in the absence of any alternative approach suggested by the department, there was no scope for it to revise the prices.

Should the government now accept Trais pricing formula, the telecom sector will see a sharp reversal in its fortunes. Trais recommendation together with the M&A policy being worked on by the government likely next week as also the earlier decision to allow 100% FDI in telecom, will make investors more comfortable. A successful auction in January,should fetch the government at least R20,000 crore, helping it narrow the fiscal deficit. The draft M&A rules suggest that mergers between even large and mid-sized players will become easier.

Aware that the final decision rests with the government, Trai has advised it that the country stands at a crucial stage where the option is either to reform or perish. The mistakes of the past five years, Trai says, have left India 5-10 years behind in the telecom revolution. The regulatory authority has counselled the government to seize the opportunity.

The Telecom Commission, the highest policy-making, inter-ministerial body in the DoT had on October 11 asked the regulator to consider revising the prices upward since it felt that the value of liberalised spectrum has not been captured. It had also raised queries on the methodology adopted asking whether the future growth potential and projections in the telecom sector were taken into account.

This is perhaps the first time in Trais history that it has stuck to its recommendations in its entirety when asked by the government for a review. Trais strong defence of its recommendations is evident from the fact as it has virtually advised the telecom department to read it (the recommendations) carefully to look for explanations for everything it has said.

The regulator has also reiterated its stand on all other issues: No auction in the 800 MHz band due to low demand and instead explore the possibility of creating an extended EGSM band; a flat spectrum usage charge at 3% of the adjusted gross revenue of operators; and no reservation of spectrum in the 900 MHz band for incumbents.

Since the issues concerned are in the domain of policy the government has the power to change the recommendations.

The Telecom Commission is meeting on October 29 to consider the Trais replies to its queries. Once a decision on them is taken by it, the matter will be taken by the empowered group of ministers headed by the finance minister P Chidambaram, following which the Cabinet will take a final decision.

Tentatively, the government plans to hold the auctions from January 8, 2014. Telecom minister Kapil Sibal, who had earlier welcomed the Trais recommendations, later said at Express Goups Idea Exchange programme that the queries of the Telecom Commission were procedural in nature.

The Trai has put up a strong defence for not recommending auctions in the 800 MHz band, currently used by CDMA operators. Rejecting the commissions advise to suggest prices for the 800 MHz band, as auctions were necessitated by the Supreme Courts order, Trai has said since two auctions had generated no response, the SC order has been complied with. It has also added that the SCs response to the governments presidential directive stated that natural resources should not be under-priced so selling the spectrum, which in propagation characteristics is similar to 900 MHz, below its value would in fact be a violation of the courts order.

Similarly, on its recommendation that there should be uniform spectrum usage charge at 3% for all spectrum auctioned and for those allotted administratively the rate should be capped at 5%, Trai has said that the current, escalating slab system discourages merger and acquisitions and leads to arbitrage.

Responding to the commissions query that it is legally bound to the current slabs ranging between 3-8% for mobile operators and a flat 1% for BWA operators, the regulator has said that Notice Inviting Applications allows the government to amend the SUC.

Reiterating its stand that no spectrum in the 900 MHz band should be reserved for incumbent holders like Bharti Airtel and Vodafone, the Trai has said that reservation would prevent the right discovery of price in the auctions and go against the principle of level-play. The commission had asked Trai whether it was legal for the authority to overturn an EgoM decision which allowed incumbents to hold on to 2.5 MHz spectrum. Trai has responded saying the proper options were not provided to the ministerial panel.